Roblox Stock May Be Victim of Its Own Growth
When you talk to adults about Roblox, their first response refers to a child in their life, either their own child or someone else’s. You will seldom hear someone talk about Roblox and the games available on their “experience” marketplace as most people are content with leaving their kids unattended with the metaverse platform and not investigating it on their own. Roblox is counting on that same story to happen worldwide for the foreseeable future. Roblox is making a lot of moves, like expanding their offices, creating an office in India, and establishing itself in China with partner Tencent. With all this growth, it would seem that Roblox is in a good spot, but some see the stock as being overpriced, like many analysts who are bearish or neutral on the stock based on their postings on Seeking Alpha. The increased scrutiny that Roblox currently faces, as well as increased regulation in regions Roblox seeks to expand to, may impact Roblox’s valuation as they struggle to reach new markets while keeping their domestic userbase engaged here on American soil.
Growth Halts and Many See Roblox Stock Doing the Same
Roblox’s userbase has been taking a slight tumble. Back in May, CNBC reported that daily active users dropped 1%, resulting in 43 million in May in comparison to the 43.3 million in April. This drop in active users led to the stock falling about 7% that day. Roblox has also been experiencing a slowdown in its growth when you compare key metrics for Q1 and Q2. Average bookings per daily active user (kids buying Robux) were down in July in comparison to April, with July’s average maxing at $4.81 and April’s maxing at $5.66. Bookings in total also took a hit, along with daily active users in North America in Europe, according to supplemental materials for Q2 2021.
Expectations regarding the growth of Roblox stock have to be curbed. With school either in session or on the way, the amount of time Roblox’s key demographic can spend on their platform will decrease over the year. Roblox seems to be relying on growth outside of North America and Europe to meet daily active user expectations, but the challenge is whether China and India can see the platform as beneficial to kids and suitably controlled.
It’s at this point where we start to see inconsistency in Roblox’s messaging. According to an article published in Variety, Roblox faces a $200 suit from the National Music Publishers’ Association. In a statement responding to the suit, Roblox said that the suit “represents a fundamental misunderstanding of how the Roblox platform operates” and that the platform is “powered by a community of creators.” This statement can be construed as Roblox admitting that any violations found on their platform are not their immediate responsibility, as the violations are committed by Roblox’s userbase who are either undermining existing checks to prevent copyright violations or abusing the openness of Roblox’s platform.
This attitude of Roblox being unable to handle or manage its community conflicts with the image that Roblox CEO David Baszucki created during the Q2 2021 earnings call with investors, especially when asked about increased Chinese regulation on online gaming:
“We’re building a distributed worldwide platform that is policy-aware in software and the rules and regulations of any country. If a country has a certain set of laws, we will abide by them. Our developers are also very understanding that the content they create will, country by country, either be applied or not.
We have a very long-term view in China. A lot of the play on Roblox is both educational as well as social… So, our response is really no response. It’s to keep doing exactly what we’ve been doing.”
Can the Metaverse Be Wrangled?
If Roblox keeps doing what they’re doing, they’re only inviting more scrutiny and downward trending when it comes to their stock price. Roblox Corporation is already experiencing negative response due to their treatment of underaged developers and creators. People Makes Games’ YouTube video has been instrumental in increasing criticism of Roblox’s practices.
Increasing complaints regarding Roblox’s moderation have been a staple of the Roblox Twitter community for a while now. In the latest fiasco regarding Roblox’s failure to moderate their avatar marketplace, a decal can be seen of an avatar’s face being covered in a specific type of genetic material. Other tweets show content of a similar nature or what seems to be automated moderation erroneously banning users. The poor quality of Roblox moderation has become a meme in the Roblox community, with many videos parodying such situations or poking fun at the auto-moderation.
The reality of Roblox’s control over what gets included in their marketplace and in their experiences does not match the confidence of CEO David Baszucki during the Q2 earnings call. If the goal for Roblox is to continue worldwide growth without providing transparent methods of dealing with that growth’s challenges, stockholders could get burnt as both public opinion and user experience sours.
Roblox will need to figure out a solution to their “community-driven” platform where a majority of their experiences are user-created experiences that could possibly violate Chinese mandates regarding in-game content.
Roblox Stock as an Indicator
Those who are interested in Roblox’s future as a platform should keep an eye on the company’s stock price. Right now, the stock’s trending down from where it was a few days ago, even though it’s up over 18% of its initial listing price from when Roblox went public. An important thing to note is that Roblox stock (currently at $82.05 at the time of this article’s writing) is valued similarly to Activision-Blizzard and higher than Nintendo. Both companies are able to operate at their scale while maintaining positive income, something that Roblox hasn’t been able to do.
As the spiritual successor to Garry’s Mod, I personally wanna see Roblox do well. But the focus on it being a platform that can ‘do anything’ means that ‘everything’ could possibly go wrong with it.